Jobs will be lost, retail stores close and consumers may even face higher prices as a result of yesterday’s announced merger between telecommunications giants Vodafone and Hutchison’s 3.
The merger will combine the two companies’ Australian operations into a joint entity titled VHA, while the new company’s products will be marketed under the existing Vodafone brand.
The two companies say the new venture will provide better mobile coverage and product range for its now six million-strong customer database and will also give Vodafone and Hutchison the opportunity to challenge Optus for the title of number two mobile provider behind Telstra.
The companies expect to extract around $2 billion of cost savings across the new entity, which means some of the group’s 3700 workers will find their jobs under pressure.
Closures of some of the merged group’s 400 stores are also likely, according to Ovum telecommunications analyst Nathan Burley.
“When a company announces they’re going to make $2 billion in savings, it’s inevitable there’s going to be some rationalisation across the two,” Burley says. “They’ve got two operations, they’ve got two of every department and now they’re only going to need one. Where there’s a 3 store and a Vodafone store, there’s only going to be one.”
But retail analyst Rob Lake says any massive rebranding exercise will be a difficult one.
“My understanding is that the 3 brand vanishes – which is surprising; I thought it was a strong brand, so you’d wonder why they’d do that. That would surprise me if they get rid of it hastily. You have to transfer customer loyalty slowly, it’s a gradual switch, like Woolworths eliminating the Safeway brand in Victoria.”
Consumer group Choice has also expressed concerns about the merger.
“Any merger involving a third- or fourth-biggest player in a market is going to lessen competition, and that’s a worse deal for all consumers,” Choice’s director of policy and campaigns, Gordon Renouf, told The Age.
“There is no reason to assume any of the savings will be passed on to customers.”
Burley says that while the new venture isn’t likely to raise costs significantly, products may return to a more “rational” price range.
“You’ve had 3 and Vodafone who have had the price leaders in the mobile marketplace, especially with 3’s mobile broadband. They’ve driven down the cost of the retail level and others have been forced to respond. Some may argue that if the weaker player doesn’t need to drive that competition or doesn’t need to put irrational offers in the market in order to grow scale, it just simply won’t.
“Potentially you’ll get a scenario where you’ll have more rational pricing.”
But Burley believes customers should win in the end.
“The long term scenario should be better competition for Australian consumers. What really is going to be created through this merger is a very strong third competitor that will allow it to compete long term with Telstra and Optus.”
Hutchison Australia chief executive Nigel Dews was also quick to dispel rumours of price rises.
“In the short term, nothing changes… customers should not be worried at all. What this transaction enables us to do through gaining greater economies of scale is provide lower prices to consumers for longer periods of time.”
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Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
